By Rebecca Wright
Buying an investment property is an exciting step, but when it comes to tax time, it’s important to understand which costs you can claim, and when.
Not every expense you incur when purchasing a rental property is immediately deductible. Some are treated as borrowing expenses, while others are considered capital costs that can’t be claimed right away. Knowing the difference can help you plan ahead and avoid mistakes in your tax return.
What are borrowing expenses?
Borrowing expenses are costs directly related to taking out your loan. These might include:
- Loan establishment fees
- Mortgage broker commissions
- Title search fees charged by your lender
- Costs for preparing and filing mortgage documents
If your total borrowing expenses are $100 or less, you can claim them in full in the same income year.
If they’re more than $100, you’ll need to spread the deduction over five income years, or the term of the loan, whichever is shorter.
What can’t I claim?
Some costs are related to buying the property itself, not the loan. These are called capital expenses, and they can’t be claimed as a deduction when you purchase the property.
Common examples include:
- Conveyancing or solicitor fees
- State or territory stamp duty on the property purchase
- Building inspection reports
- Title transfer costs
While you can’t claim these costs as deductions, they’re still important to keep track of. They can be added to the cost base of your property, helping to reduce your capital gains tax (CGT) when you eventually sell.
Property tax rules can be tricky, especially when distinguishing between borrowing and capital expenses. If you’re planning to buy, or recently purchased, a rental property, it’s worth getting professional advice to make sure you’re claiming correctly and maximising your deductions.
At Moore Lewis & Partners, we have a team of experts in house who can help you get it right from day one! Give our friendly team a call today to book an appointment.
The information in this article is general in nature and based on current Australian tax laws and ATO guidance at the time of publication. It does not take into account your personal circumstances and should not be relied upon as professional advice. We recommend speaking with a registered tax agent or accountant before making any decisions relating to your tax situation.
